Time Warner in talks to part ways with Time Inc.

FORTUNE — Media giant Time Warner has begun discussions to separate itself from Time Inc., its $3.4 billion (in annual revenue) publishing division, according to three people familiar with the matter. Meredith, the Des Moines-based publisher of Family Circle and the Ladies’ Home Journal, is in talks with the company, according to two people familiar with the matter. A meeting of the buyer’s representatives occurred today to discuss a potential deal, which is still in a formative stage and may never come to fruition.

In this scenario, most of the company’s publishing titles, such as People, InStyle, and Real Simple, would be carved out and rolled into an independent company and sold to Meredith. Time Warner TWX would maintain control of at least three titles—Time, Sports Illustrated, and Fortune, according to the sources. A Time Warner spokesman says, “We never comment on speculations of this nature.” A spokesperson for Meredith declined to comment.

The exact mechanics of the complex transaction were not available at the time of publication.

Time Warner Chairman and CEO Jeffrey Bewkes has been actively slimming down Time Warner, shedding Time Warner Cable TWCand AOLAOL in two separate transactions in 2009. He also recently replaced the CEO of CNN, Jim Walton, with veteran TV executive Jeff Zucker.

The move to divest Time Inc. — the largest magazine publisher in the U.S. — follows a decision by News CorporationNWS to split its film and television business and publishing assets into two companies. It’s something of a shift for Bewkes, who had been touting the publishing group’s gains in market share and its growing digital reach. But with its revenues down 6.6% and operating earnings falling 25.4% in 2012, Time Inc. has become an increasing drag on its corporate parent. Time Inc.’s revenue last year accounted for just under 12% of Time Warner’s total sales of $28.7 billion. (The publishing unit generated $420 million in operating income in 2012.)

Last month Time Inc. announced it would lay off 6% of its work force. In a memo dated Jan. 30, 2013, Time Inc. CEO Laura Lang — who arrived just over a year ago from Digitas — said “we must continue to transform our company into one that is leaner, more nimble and more innately multi-platform.” The company now boasts 50 million unique visitors to its websites each month and offers digital editions of all of its U.S. magazines, which it says is helping drive new subscriptions. It is unclear what Lang’s role would be in a new, separate company. A Time Inc. spokesperson declined to comment.

Bewkes gave a subtle hint that he might have changed his thinking about the magazine division in a Feb. 6 interview on CNBC, the same day Time Warner posted net income up 4.6%, to $3 billion. When asked if he might follow Rupert Murdoch’s lead at News Corp., he told CNBC’s Carl Quintanilla, “It’s always a good question … There’s tremendous resilience in the national magazine publishing business, but advertising demand is secularly not so strong; it’s down a bit. The question whether we ought to put that into a different frame is one we’ve been asking.” He then referred to Time Warner as “a great storytelling company, whether in film or TV.” Magazines were not mentioned.

The People magazine franchise is the top prize in the deal. It is said to be the most profitable magazine in the world. (Time Inc. does not break out financials by title.) It is not clear why Bewkes might want to keep Time magazine, Fortune, and Sports Illustrated. Time magazine is less profitable than it once was. Fortune has a money-making online joint venture with Time Warner’s CNN unit. And Sports Illustrated has clear value for Time Warner’s Turner Broadcasting System, although in the past the two have disagreed on digital strategy.

Outside advisers involved in the potential deal include the Chicago merchant bank BDT Capital Partners, run by former Goldman Sachs banker Byron D. Trott. BDT has worked for Meredith in the past. A spokesperson for BDT declined to comment.